Stocks lost some steam after surging on the opening, signaling the market may have already priced in some of the positives from President Trump's trade truce with China.

Stocks may also have borrowed on some of the gains from any Santa rally, and one strategist says it's time to play defense.

When stocks surge at the open on a Monday, they have averaged a negative close on the day and week, but were above average for the month, according to Bespoke.

Traders work on the floor of the New York Stock Exchange.

Brendan McDermid | Reuters

Steam is coming out of the post-G-20 stock rally, signaling that the market may have celebrated the trade progress before President Donald Trump even met with China President Xi Jinping.

The stock market this weekend got past the second of two big hurdles strategists said stood in the way of a solid year-end rally— trade and the Fed. Now, they say while the rally could continue, a big chunk of that run-up may have already happened.

After a positive trade meeting between the leaders this weekend, the S&P 500 rocketed higher Monday morning along with other stock indices. But by mid morning, the S&P was giving back some of those gains, after hitting 2,800 and was just below 2,785 in afternoon trading.

The S&P 500 ripped nearly 5 percent higher last week, in its best week since 2011.

"Part of the trade rally happened on Friday. 2,800 has been a level of resistance," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "We still need to see the details."

Traders said Monday's trading could be key to determining whether stocks are setting up to go higher into year end. One stock they continue to watch as a sentiment indicator is Apple. Apple was up about 2.2 percent, holding just above $182 per share and off its high of $184.68.

"I don't think today's highs will be the highs of December," said Scott Redler, partner with T3Live.com. "What would dampen sentiment would be if they take Apple red instead of letting it bounce towards $190, which is where I think it goes this week."

Redler said the market is in an uptrend with the two big headwinds removed.

"There's an upside bias but be careful of going all in today," said Redler.

Powell had been expected to testify this week before Congress, but his appearance was postponed due to the national day of mourning for President George H.W. Bush.

Gulf remains large

Trump met Xi Saturday after the G-20 leaders' gathering and returned to the U.S. with a promise to hold off on new tariffs while negotiations continue for 90 days. The White House declared victory, but some strategists said it's too soon to judge whether there will be a successful conclusion.

"The gulf between the two sides remains large, with the U.S. delegation seeking fundamental changes in the Chinese economic model that we find it hard to believe will be acceptable to China. In this connection, the scope and ambition of the talks remains to be defined," wrote Cowen policy strategist Chris Krueger.

Beyond Trump's trade policy and the Fed, there are other issues impacting the market.

"I still think some of the basic issues are still in place...Friday we get another wage number that's going to bring that back in focus again," said James Paulsen, chief investment strategist at Leuthold Group. A hotter wage number could signal to markets that there's potentially higher inflation ahead, and therefore a more hawkish Federal Reserve.

"It's certainly a Santa rally. We have had one.. it qualifies as one with [stocks] 8 percent off the lows. Whether it carries all the way, I don't know. I just think I'd be defensive on this. If you didn't sell your tech stocks, now is a good time," Paulsen said.

Paulsen said he believes the market will see lower lows, and if not this year, then in the first half of next year. "I don't really think we had a washout panic yet," he said.

Boockvar said despite the market's positive reaction to Powell last week, the Fed remains a concern. "On the Tuesday before Powell spoke, the 2-year was at 2.83 percent. Today, they were at 2.81. They really haven't moved that much," he said. The 2-year reflects the Fed's policy moves more closely than longer duration Treasurys.

As Monday's stock market rally faded, buyers went into bonds, pushing yields lower. The 10-year yield, as high as 3.04 percent was below 3 percent at midday.

"We had a very low inflation number within the ISM series. The optimism that people were expecting to have some durability, given the trade truce, was unable to really carry through." said Ian Lyngen, head of U.S. rates at BMO.

Lyngen said bonds were also reacting to the fizzling stock rally. "It is the acknowledgement of the reality that a trade deal with China may be too little, too late to offset concerns about a slowing in the economy," said Lyngen.

Flattening yield curve

As the 10-year has moved lower recently, the 2-year yield has been fairly steady, and the two are getting closer together—or flattening. A flattening yield spread is seen as a warning on the economy, and when yields invert, it is a sign of recession.

"Why would the yield curve be flattening if we're all excited? I think any December rally is going to happen in overseas markets, as they've suffered most from worries about global growth. At best, after this rally over the last couple of days, , the market just chops around," said Boockvar.

Boockvar said even though stock strategists do not see big gains next year, investors are not selling because of that. "The market is not the discounting mechanism that it used to be. They will be worried about 2019 in 2019," he said. "The Fed and the trade deal gave everybody a respite. We don't have to talk about this trade deal every single day now. This flattening of the yield curve is telling us growth is fading regardless."

The type of more than 1 percent gap up in the S&P 500 has occurred in the past on a Monday morning, and according to Bespoke, it was followed by slightly lower average returns over the next week but just above average returns for the rest of the month.

Bespoke studied SPY, the SPDR S&P 500 ETF Trust, said Monday was the 40th time in its history that it gapped up between 1 and 2.5 percent. After a surge higher, SPY on average ended lower, down 0.2 percent on the Monday, and on average down 0.9 percent for the week. But for the month, the ETF was up 1.2 percent.